Citing its dual goals of maximum employment and inflation at a rate of 2 percent over the longer run, the Fed decided to raise its target range for the federal funds rate by 75 basis points to 3 to 3.25%.
The move marks the third straight 75 basis point rate hike by the Fed and lifts rates to their highest level since early 2008.
With inflation remaining elevated, the Fed also said it anticipates that ongoing interest rate increases will be appropriate. Fed officials expect to raise rates to 4.4% by the end of the year, well above the 3.4% forecast in June.
Fed officials expect to increase rates to 4.6% by the end of 2023 before eventually scaling back rates in 2024 and 2025.
The central bank officials now expect GDP to inch up by just 0.2% in 2022 compared to the 1.7% jump forecast in June.
The median forecast for GDP growth in 2023 was also lowered to 1.2% from 1.7% in June. GDP is expected to grow by 1.7% in 2024 and by 1.8% in 2025.
Fed officials expect consumer prices to spike by 5.4% this year before price growth slows to 2.8% in 2023 and 2.3% in 2024.
In his post-meeting press conference, Fed Chair Jerome Powell reiterated the central bank's strong resolve to bring inflation down to 2%, pledging to "keep at it until the job is done."
Powell suggested the Fed will need to raise rates to a "restrictive level" and keep them there "for some time" in order to combat elevated inflation.
The dollar index surged to 111.58 and despite dropping to 110.70 subsequently, firmed to 111.31, netting a gain of about 1%.
Against the Euro, the dollar strengthened to 0.9847 from 0.9970.
The dollar is trading at 1.1274 against Pound Sterling, gaining from 1.1381.
Against the Japanese currency, the dollar firmed to 144.69 yen before dropping to 144.03 yen, still more than 0.2% up from the previous close.
The dollar is stronger against the Aussie at 0.6634.
The Swiss franc is trading at 0.9666 a dollar, easing from 0.9643. The dollar has firmed against the Loonie at C$1.3466, gaining from C$1.3369.